White House and Agency Split on Internet Privacy

By STEPHEN LABATON

Published: May 23, 2000

WASHINGTON, May 22—
Clinton administration officials today threw cold water on a proposal by the Federal Trade Commission for legislation to protect consumer privacy on the Internet. But the commission chairman said failure to put new federal privacy-protection standards in place would undermine consumer confidence and significantly retard the development of commerce in cyberspace.

The jockeying between the administration and the chairman, Robert Pitofsky, came as the agency gave its annual report to Congress on online privacy and sought new authority to impose privacy rules to protect consumers.

The report, approved by the commission on Friday, advises Congress to continue to allow the industry to regulate itself but to allow the commission to establish federal standards and to intervene when industry organizations are unable to resolve a case.

Mr. Pitofsky said such an approach already works well in the advertising and funeral businesses.

''Consumers should not have to forfeit their privacy online in exchange for the rich benefits of e-commerce,'' Mr. Pitofsky said. ''A well-crafted approach, in fact, will benefit the growth of e-commerce and provide important protections to consumers. Legislation is now needed to ensure consumers' online privacy is adequately protected.''

The commission is seeking to establish standards in four areas: notification about the use of personal data; consumers' choices about the use of such information; the right of individuals to review data about them; and security measures to prevent unauthorized disclosure.

While legislation has been introduced by Democrats in both the House and the Senate, there is no expectation that Congress will act any time soon.

Industry groups and Republican lawmakers have strongly opposed the agency's proposal, saying it would amount to a costly and unwarranted intrusion on a nascent marketplace that has been making progress on its own.

Representative Billy Tauzin, the Louisiana Republican who is chairman of the House Commerce subcommittee on telecommunications, trade and consumer protection, said the industry had made ''extraordinary progress'' in carrying out privacy rules. He said his primary concern was to head off efforts by the states to create rules piecemeal.

''We need to proceed cautiously,'' he said. ''Internet companies understand that they need to protect the privacy of their customers as a matter of good business practice, and that's why they are doing it.''

The Republican lawmakers found themselves in an odd alliance with officials from the White House and the Commerce Department.

Administration officials were decidedly lukewarm about the commission's proposal. They said that the government should continue to rely on the industry to police itself and that the White House had a deeper interest in promoting privacy laws in other areas, including health care and financial services.

Commerce Secretary William M. Daley said today that if the industry could show that it was effectively policing itself, ''legislation would not be necessary.''

''If we do not see such progress,'' he said, ''then we may eventually need to consider whether legislation would provide companies with the right incentives to have good policies and participate in an effective self-regulatory program.''

While the administration's view was that the Internet needs more time to develop, the commission's report, based on the results of a recent study of Web sites, suggested that the industry had already made some progress but far from enough.

The study found that 88 percent of 335 randomly selected Web sites had some kind of privacy disclosure, varying from a perfunctory notice that says ''this is a secure order form'' to something more detailed.

But the study also found that only 20 percent of Web sites that collect personal information met the existing government guidelines. And only 8 percent of the most heavily visited Web sites displayed a seal of approval from one of the programs established by the industry.

''Because self-regulatory initiatives to date fall far short of broad-based implementation of self-regulatory programs, the commission has concluded that such efforts alone cannot ensure that the online marketplace as a whole will follow the standards adopted by industry leaders,'' the report said.

As a result of the shortcomings in protecting privacy, the report concluded that many consumers appear leery about making purchases on the Internet. The report cited studies estimating that online companies had already suffered significantly from a common perception among consumers that they should not buy items online because the information they provide may be misused.

One study cited in the agency's report found that consumer privacy concerns resulted in as much as $2.8 billion in lost online retail sales last year, while another suggested a potential loss of as much as $18 billion by 2002, compared with a projected total of $40 billion.

''Internet commerce will not develop to the ultimate extent because people just will continue to not have confidence that their private information will be protected to the maximum,'' Mr. Pitofsky said.

The two Republicans on the commission disagreed with the majority.

One of the Republicans, Orson Swindle, issued a strongly worded dissent that criticized the majority for not doing a precise analysis that weighed the costs and benefits of any new regulations. Mr. Swindle called the privacy report ''embarrassingly flawed'' and said its recommendations ''would constitute a troubling devolution of power from our elected officials to unelected bureaucrats.''

The commission's other Republican, Thomas B. Leary, concurred in part and dissented in part. Mr. Leary said that some legislation was appropriate, but that the majority had asked too much and that a law on appropriate notice should suffice. He also said the majority's opinion was too narrow because any legislation should apply to offline commerce as well as online commerce.